The return on an investment fund
There are two ways to achieve a return on a fund. For example, many funds pay out dividends. A dividend means that resources are made available. The amount of a dividend depends on the issuing institution. The main focus here is on financial performance. In addition, the price of the fund can fluctuate, which means that a return is achieved when a fund manager sells something at a higher point compared to where the fund manager entered.
Are investor returns being achieved?
Investors in investment funds often achieve lower returns compared to the investment funds they have invested in. This is a difference of 0.4% to 3%. It is therefore important not to only look at the realised returns.
Are investors rational?
Although investment theory assumes that investors are rational, in practice this is not always the case. It can happen that investors are influenced by certain emotions and herd behaviour. This can lead to people not buying more, but giving up. This can be a shame, because it is possible that one is on the verge of achieving success.
When investing in investment funds, it can also happen that funds end up higher in the rankings. In this way, they are rewarded, as it were, with the investors who have entered.
Investment funds cost returns
It can be interesting to compare reported returns with actual returns of investors who invested in certain mutual funds. Research has shown that investors in the US underperformed by about 2% in the period from 1991 to 2013 compared to the ‘buy and hold’ return of mutual funds themselves.
The return on investment funds
Morningstar has conducted research into the difference in returns of investment funds and the investors who invest in these funds. The research showed a difference of between 0.5% and 1.5% to the disadvantage of the investors. Read more about comparing returns on investment funds .
The reason for this outcome may be that investors are more likely to invest in mutual funds that have performed well and are inclined to sell mutual funds that have performed poorly. In this way, investors miss out on the return they would have earned before they entered and only receive the poor return before they exit.
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